Mortgage lenders not passing on rate cuts to borrowers

Published 22/06/2011

Consumer group Which? has today accused mortgage lenders of not passing on interest rate cuts to borrowers. Its research found that 95% of mortgage lenders failed to fully pass on cuts in the Bank of England base rate after it was cut from 5% to its current level of 0.5% between October 2008 and March 2009.

Since then, more than a fifth of lenders have increased their Standard Variable Rate (SVR), despite no change in the Bank of England rate.

The average SVR, according to Which?, is now 3.48% above the base rate, compared with 1.95% in September 2008 and the highest SVR around is 6.08% from KRBS (previously known as Kent Reliance Building Society).

Which? also warns that many borrowers, unable to remortgage to a better deal due to insufficient equity or income, will face financial difficulty when interest rates finally rise.

In an article on the BBC, L&C’s David Hollingworth said today that homeowners should brace themselves for higher monthly mortgage payments when the Bank of England starts to push up interest rates.

"I think lenders will look to push up standard variable rates by more than any base rate increase," he warned. "That's where vulnerable borrowers really stand to lose."

For the time being however the Bank of England rate is likely to remain at its all time low of 0.5% for some months to come. The Bank of England’s Monetary Policy Committee today released the minutes from this month’s rate-setting meeting and they showed that 7 out of the 9 committee members voted to keep rates on hold at 0.5%.

The good news for borrowers is that the current low interest rate environment means that there are some very competitive mortgage deals available for those looking to switch to a better rate.

Whether you’re happy sticking with a variable rate but want to move to a deal that directly tracks the Base Rate, as opposed to one linked to your lender’s Standard Variable Rate, or you’d prefer a fixed rate mortgage to protect yourself when rates do eventually rise, there are good deals to be had.

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

We're here to offer our customers excellent fee free mortgage advice. Our expert advisers will help you secure the best mortgage deal whether you're a first time buyer, remortgaging your home, buying to let or moving up the property ladder. We'll help you throughout the mortgage process – no hidden costs or surprises, just straightforward, honest, mortgage advice.

Representative example A mortgage of £190,596 payable over 22 years, initially on a fixed rate until 30/04/23 at 1.65% and then on a variable rate of 4.90% for the remaining 17 years would require 63 payments of £860.92 and 201 payments of £1102.66. The total amount payable would be £277,868 made up of the loan amount plus interest (£85,277) and fees (£1,995). The overall cost for comparison is 3.6% APRC representative.

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